Companies can make moves now to boost value for future sale


As the U.S. economy shows increasing signs of a gradual economic recovery, the mergers and acquisitions market is also showing signs of life.

“While the results for August showed continued weakness in M&A activity compared with the same period last year, we continue to see signs indicating a possible pick-up in activity may be just around the corner,” the September ‘Merger Tracker’ released by Chicago-based William Blair & Co. states. “These signs include a surging stock market, near-record amount of private equity capital available for investment, and increased optimism that the worst of the economic downturn and financial crisis has passed.”

While overall M&A activity throughout the country was 41.9 percent lower in August than it was in August of 2008, the smaller end of the middle market was actually up 2.5 percent for the month, the Blair report states. Throughout much of the recession, the appetite for companies in the lower end of the middle market (with sale prices of less than $50 million) has remained relatively strong.

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As the economy picks up steam, demand for companies in the lower end of the middle market will only grow. As such, owners of companies in that market segment can now take action to maximize their company’s valuation for a future sale, whether it be six months or several years from now.

While valuations and prices are low, companies can boost their valuations and eventual sale price if they are able to acquire another company’s product line, customer list or even an entire company, said Jeff Trader, managing director with Valuation Research Corp., a Milwaukee-based independent valuation firm that has offices throughout the country.

“On the transaction side, there are a lot of opportunities now – a lot of companies have looked at themselves (in the recession) and have looked at what is core and what is not core to their business,” he said. “And a lot of companies have excess capacity, which allows them to look at opportunities like buying a product line or customer list and bringing that into their existing basket of products.”

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Adding a product line through acquisition is one of the most effective ways to boost the value of a company in buyers’ eyes, Trader said.

“In adding product lines, you’re going from survival mode to value-enhancement mode,” he said. “If you can add a product line, it can boost your bottom line very quickly and you can get a multiple effect very quickly.”

Companies looking to boost their future valuation can also use today’s market conditions, which has resulted in a more than 10 percent unemployment rate in Milwaukee, to boost their management team, Trader said.

“You can get people (today), whether they be technical, sales or management, that you would not always have access to who can hit the ground running,” he said. “And if you do it right, you can make them part of your team, which in the long run will maximize your holdings.”

Privately held businesses can also boost their valuation ratio and potentially boost their sale price by going through the valuation process now.

“Through the experience, they can see from a valuation perspective what drives value and where you are versus your competitors in the marketplace,” Trader said. “It’s no different than selling a house – we try to look at what is the value (of the company) and how does that stack up to the industry and other companies in it.”

By having a current valuation, company owners will be able to accurately and effectively plan the steps they need to make in the near-term future to build value, in order to achieve an acceptable outcome in a sale. Because of the painful lessons learned during the recession, an accurate valuation should be part of that planning process, Trader said.

“There is a more jaundiced look at the past now. It is more important to build a picture that, to the buyer, makes sense in the current environment,” he said. “If you’re selling nine months from now, you want to show them (what the company can do) in that time frame. We’re developing a new history now and it is more vital to show someone a light on what is going on in the future.” 

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